Apple strikes deal with China's UnionPay for App Store payments

Apple today announced it had struck a deal with UnionPay, China's most popular credit and debit card system, to accept payments for digital goods on its App Store.

"The ability to buy apps and make purchases using UnionPay cards has been one of the most requested features from our customers in China," Eddy Cue, Apple's executive in charge of its Internet software and services division, said in a statement Monday.

Previously, the only way for China's consumers to purchase apps and other digital content from Apple's online market was with pre-paid cards, said Ben Thompson, the independent analyst who operates Stratechery.com.

Cue cast the deal as a boon for Apple's efforts in China, a country where it collects an important fraction of its revenue. "China is already our second largest market for app downloads," Cue said. The U.S. is the leading source of app downloads and revenue.

In the September quarter, Greater China -- a sales region composed of mainland China, Hong Kong and Taiwan -- accounted for 14% of all revenue, a one percentage point decrease from the year before. During a call with Wall Street analysts in October, CEO Tim Cook blamed the downturn on the delayed launch this year of the iPhone 6 and iPhone 6 Plus in China, but remained bullish on the market.

"The growth there is phenomenal ... and so I see lots of positives," Cook said last month.

Apple does not break down App Store revenue by market, but the division that includes app sales -- dubbed "iTunes/Software/Services" -- reported revenue of $4.6 billion in the September quarter, up 8% year-over-year.

The agreement between Apple and UnionPay -- which is the only Chinese government-sanctioned payment and inter-bank clearing house -- may have implications in the future for Apple Pay, the Cupertino, Calif. company's mobile payment service.

"An agreement to support Apple's payment standard would seem to be the next logical step," said Thompson in his Daily Update to subscribers on Monday.

Apple faces substantial regulatory hurdles before it could launch Apple Pay in China.

One possible workaround would be to partner with Alibaba, China's e-commerce giant, which has obtained the necessary approval for its Alipay service. According to Joseph Tsai, executive vice chairman of Alibaba, Apple and his firm are currently in talks. One possible result: Apple Pay would be linked to Alipay, with money for mobile electronic transactions being drawn from a customer's Alipay account.

"How can we help Apple on the regulatory side, because Alipay has the license to operate a payment business in China?" Tsai told the Wall Street Journal (subscription required) in an interview last week. "There's also an operational component. If you are talking about Alipay as the back-end operation to support the front-end Apple Pay, how do the two systems work?"